ITA NO. 4818/Del/2012
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "A", NEW DELHI
BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER
AND
SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
I.T.A. No. 4818/DEL/2012
A.Y. : 2008-09
M/s Ahlcon Parenterals VS. DCIT, Circle 1(1),
(India) Ltd., New Delhi
C/o A.K. Sehgal & Co.,
Chartered
Accountants,
1102, Prakash Deep, 7,
Tolstoy Marg,
New Delhi ­ 110 001
(PAN: AAACA1112C)
(APPELLANT) (RESPONDENT)
Assessee by : Sh. A.L. Sehgal, CA
Department by : Ms. Y. Kakkar, DR
ORDER
PER SHAMIM YAHYA: AM
This appeal by the Assessee is directed against the order of
the Ld. Commissioner of Income Tax (Appeals)-IV, New Delhi dated
09.8.2012 pertaining to assessment year 2008-09.
2. The issue raised is that Ld. CIT(A) erred in confirming the
addition of Rs. 10,48,187/- u/s. 145A of the I.T. Act by adding to
closing stock the excise duty payable on closing inventory of
finished stock
3. In this case as per the facts of the case, the appellant had
shown the value of closing stock of finished goods at
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Rs.1,86,15,485/- in Schedule 5 to the Balance Sheet as on
31.03.2008. However, the value of closing stock of finished goods
was shown at Rs. 1,75,67,402/- in Schedule 14 (relating to increase /
decrease of stock) to the Profit and Loss account for the year ended
31.03.2008. On being asked to explain the difference of Rs.
10,48,183/- in the valuation of closing stock of finished goods as at
the close of the financial year under consideration, it was submitted
by the assessee that the difference was an account of Excise duty
payable on the closing stock which has been reduced from the
value of the closing stock for the purpose of P&L account and has
been shown as statutory liabilities in Schedule 10. It was observed
by the AO that the method of accounting prescribed u/s. 145A of the
Act mandated that the valuation of inventory for the purposes of
determining the income chargeable under the head "Profits and
gains of business or profession shall "include the amount of any tax,
duty, cess or fee (by whatever name called) actually paid or incurred
by the assessee to bring the goods to the place of its location and
condition as on the date of valuation."' It was further observed by
the AO that as per section 3 of the Central Excise Act, 1944, Excise
duty liability arose immediately upon production or manufacture of
goods and such duty was payable at the prescribed rates. Therefore,
AO noted that on the last date of accounting period the closing
stock of manufactured goods is to be valued by including the
component of Excise duty liability. The AO referred to the decision of
the Hon'ble Supreme Court in Moriroku Ut India (P) Limited v. State
of Uttar Pradesh [2008] 4 SCC 548 wherein it was held that the levy
of Excise duty was on the taxable event of manufacture and is
calculated on the value of manufacture goods. The AO also referred
to the decision of the Hon'ble Apex Court in CIT vs. British Paints
India Ltd. (1991) 188 ITR 44 to the effect that the valuation of stock-
intrade should include all associated costs so as not to give a
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distorted picture of the true state of the business for the purpose of
computing the chargeable income for the year under consideration.
In the above case, it was held by the Hon'ble Apex Court that an
incorrect system of accounting for the valuation of stock-in-trade
which excludes all costs other than the cost of raw materials may
diminish the assessment of the taxable profit for the year under
consideration. It was observed by the AO that since the goods had
been manufactured and were ready for dispatch, the liability of
Excise duty had already accrued and hence following the mercantile
system of accounting followed by the appellant and the accounting
method prescribed u/s 145A the Excise duty component was to be
included in the value of closing stock. The AO after giving show-
cause to the assessee and distinguishing the case laws cited by the
assessee, has added the above amount of Rs.10,48,183/-.
4. Upon assessee's appeal Ld. CIT(A) rejected the assessee's
contention that on the basis of consistency of method, appellant's
claim should be allowed. He held that principle of resjudicata does
not apply to Income Tax matters. Ld. CIT(A) further held that the
assessee is following mercantile system of accounting and that the
excise duty is payable immediately on production or manufacture of
goods. Therefore, it was held that there is no reason as to why
excise duty liability should not be included for valuation of closing
stock of finished goods. Ld. CIT(A) further referred to the decision of
the Hon'ble Apex Court in British Paints India Ltd. and accordingly,
he affirmed the addition made by the AO.
5. Against the above order the Assessee is in appeal before us.
6. We have heard both the counsel and perused the records. Ld.
Counsel of the assessee submitted that the issue as to whether the
excise duty is included in the closing stock has been considered by
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the Hon'ble Apex court and the Hon'ble Jurisdictional High Court and
another Hon'ble High Courts. He claimed that it has been decided
that excise duty is not to be included in the value of closing stock.
In this regard, he referred to the following cases laws and short
notes:-
- "CIT vs. Dynavision Ltd. (2012) 348 ITR 380 (SC)
Valuation of stock ­ Excise duty not includible in valuing
closing stock ­ Income Tax Act, 1961
Where, on the ground that the assessee had not included
in the closing stock the element of excise duty the AO
added a sum of Rs. 16,39,000/- to the income of the
assessee on the ground of undervaluation of closing
stock.
Held, affirming the decision of High Court, that the
addition of Rs. 16,39,000/- to the income of the assessee
on the ground of undervaluation of the closing stock was
wrong. Decision in Madras High Court in CIT vs.
Dynavision Ltd. (2004) 267 ITR 600 (MAD) affirmed.
- CIT vs. Modipon Ltd. (No. 2) 334 ITR 106 (Delhi)
Valuation of closing ­ Excise and Customs Duties ­
Assessee entitled to exclude excise and customs duties
paid from value of closing stock ­ Income Tax Act, 1961.
- ACIT vs. Narmada Chematur Petrochemicals Ltd. 327 ITR
369 (Guj.). Accounting ­ Closing stock ­ Valuation ­
Excise Duty ­ Liability only at time of removal of goods ­
Not includible in valuation of closing stock of finished
goods at end of accounting period.
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- CIT vs. Loknete Balashaer Besai S.S. Ltd. 339 ITR 288
(Bom.)
Sec. 145A ­ Valuation of Stock ­ Law applicable ­ effect of
insertion of section 145A w.e.f. 1.4.99 ­ Excise Duty on
unsold stock not to be taken in to account."
7. Ld. DR on the other hand submitted that as per the express
provisions of the Act as mentioned in section 145 of the I.T. Act,
assessee should have included excise duty in the valuation of the
closing stock. She further claimed that the case law referred by the
assessee's counsel are pertaining to the period which is prior to
amendment in section 145A.
8. We have carefully considered the issue. We find that Hon'ble
Bombay High Court in the case of CIT vs. Loknete Balasher Besai
S.S. K Ltd. 339 ITR 288 had the occasion to examine the issue and
the effect of amendment of section 145A w.e.f. 1.4.1999. The
Hon'ble High Court has expounded as under:-
"Section 145A of the Income Tax Act, 1961, was inserted
by the Finance (No. 2) Act, 1998, with effect from April 1,
1999. It provides for valuation of purchase and sale of
goods and inventory for the purposes of determining the
income chargeable under the head "Profits and gains of
business or profession". The expression "incurred by the
assessee" in section 145A(b) is followed by the words "to
bring the goods to the place of its location and condition
as on the date of valuation". Thus, the expression
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"incurred by the assessee" relates to the liability
determined as tax, duty, cess or fee payable in bringing
the goods to the place of its location and condition of the
goods. The Explanation to section 145A(b) makes it
further clear that the income chargeable under the head
"Profits and gains of business" shall be adjusted by the
amount paid as tax, duty, cess or fee. Therefore, the
expression "incurred" in section 145A(b) must be
construed to mean the liability actually incurred by the
assessee. Though the date of manufacture is the
relevant date for dutiability, the relevant date for the
duty liability is the date on which the goods are cleared.
In other words, in respect of excisable goods,
manufactured and lying in stock, the excise duty liability
would get crystallised on the date of clearance of goods
and no on the date of manufacture."
9. From the aforesaid exposition, it is clear that the liability of
excise duty in cases such as this case gets crystallized only on the
date of clearance of goods and not on the date of manufactur. Since
in the present case the goods have not been cleared and the excise
duty is not exigible on the same, hence, the excise duty should not
be included in the valuation of the closing stock. Accordingly, in
light of the aforesaid precedent and discussion, we set aside the
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orders of the authorities below and hold that excise duty payable in
this case is to be included in the closing inventory and accordingly,
this appeal by the Assessee stands allowed.
10. In the result, the Appeal filed by the Assessee stands allowed.
Order pronounced in the Open Court on 24/3/2014.
Sd/- Sd/-
[R.P. TOLAN] [SHAMIM YAHYA]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Date 24/3/2014
"SRBHATNAGAR"
Copy forwarded to: -
1. Appellant -
2. Respondent -
3. CIT
4. CIT (A)
5. DR, ITAT
TRUE COPY By Order,
Assistant Registrar,
ITAT, Delhi Benches
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